To Help the World’s Poor, Give Them Real Jobs

Friday, July 12, 2013

By Charles Kenny

The latest U.S. jobs numbers showed a U.S. unemployment rate still at 7.6 percent. The official global unemployment rate, compiled by the International Labor Organization (ILO), is around 6 percent—which suggests American workers are worse off than their counterparts worldwide. But that statistic is deeply misleading. Unemployment is, by and large, a luxury of rich countries. Billions of people across the world are stuck working long hours in subsistence farming, hawking, or other informal occupations, desperate for a job that provides a weekly wage packet. Solving this underemployment problem is the biggest key to the challenge of economic development worldwide.

In surveys about people’s biggest concerns worldwide, income and employment pretty much always come out on top (PDF). Polls across countries also suggest that losing a job is one of the biggest possible hits to self-reported happiness. At a first glance at the data, you might think the misery of joblessness was a rich-world problem. According to the ILO, Pakistan has an unemployment rate of just 5.2 percent, for example, and India’s is at 4.2 percent.

The majority of Pakistan’s and India’s populations work in small-scale farming or are “self employed” in informal microenterprises. That’s true across much of the developing world. The National Bureau of Economic Research’s Rafael La Porta and Andrei Shleifer suggestthat, in the poorest countries, more than two-thirds of the labor force is working on the family farm or is in the informal sector.

Farms managed by the world’s poorest people tend to be small and inefficient—demanding a lot of labor for little output. That’s why families farming them make up the bulk of the world’s population living on less than $1.25 a day. The majority of enterprises run by the world’s poorest are shops and kiosks making a few sales a day—general stores, tailor shops, telephone booths, or fruit or vegetable businesses. In India, data collated by MIT’s Abhijit Banerjee and Esther Duflo suggest the average shop run by people living in poverty makes a profit of just $133 a year. That low productivity helps to explain why, even though only around 200 million people in the world are considered unemployed by the ILO, 1.3 billion workers lived in families below the $2-a-day poverty line.